Importance of Performance Metrics In A Business

Posted by in Podcast | May 1, 2014

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Do you have certain metrics in place that reflect the state of your buiness at a given time? Well defined performance metrics reflect exactly what is happening within a business and what areas you may need to focus on. In this episode of Better Business Podcast, Randy Tucker shares specific insights on how to start using metrics effectively in your business.

Full Transcript of Audio Below

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We’ve talked in other episodes about why it’s important to use metrics within your company.  Metrics are really the story that tells you exactly what’s happening in the business and what areas you may need to focus on.

We’re going to explore that further with Randy today and he’s going to give us some specific insight that you can use to start using metrics effectively in your business, even if you’re not using them today.

Importance of Using Metrics In Your Business

Interviewer:  Randy, before we discuss how to define and use specific metrics, can you explain why it’s important to actually be using metrics in your company?

Randy: Yes, it’s similar to…how there are metrics that are used when you go to a physician.  They take your blood pressure.  They listen to your heart.  They may take your temperature.  Those are metrics they use to determine, “Are you ill or are you not ill?  Are you somewhat healthy,” to get a flavor for… where are you?

In a business, you have those same types of touch points and metrics that need to be there that you need to know;

  • “Is the sales cycle healthy?
  • Are we doing marketing properly?
  • Is our accounting in place?  Is it working properly?”
  • What are those benchmarks?

You need to know those benchmarks from a business perspective as well.

Interviewer: Great, I think that’s a perfect analogy to explain some of these things.  Really, metrics are going to tell you how you’re doing and if you’re going in the right direction.

What Are The Key Performance Metrics For a Sales Team

Interviewer: Before we get into some specific things about how to track metrics, can you share a couple examples of maybe some specific metrics that a sales team might be measured by?

Randy: Sure, a sales team’s metrics would be, for instance;

  • How many conversations are they having with perspective new clients a day?  That makes a big difference.  That’s building the new business.  It’s important that they’re talking to existing customers and clients as well.
  • But, a real key metric that makes the business grow is how many new attempts are you doing to generate new customers? That’s important.  That’s called growth.

Interviewer: So, when you talk about new conversations and growth on that side of things, what is the specific metric that somebody would be measured by?  Is it new emails that go out?  Is it new deals that get created?

  • What part of the sales process is encompassed by a new conversation that’s happening?

Randy: Well, that’s really dependent on the business.  The initial contact with a person and the way I like to help the clients that we work with is sending emails. It’s all great.  That can be automated.

What’s really important is that;

  • Your sales professionals speak to or meet with a human being who’s going to make a decision,
  • Who’s going to determine if they like you or not,
  • Because relationship selling is what’s important in today’s environment.

In the old days, there was the good ol’ boy club.

  • You went out and played golf in the larger companies.
  • You got to know people. You built relationships.
  • It’s not quite happening that way as much anymore, because businesses tend to be smaller.

Therefore, that personal conversation or meet is very important.

Tracking Some Of The Most Important Performance Metrics

Interviewer: Is this the type of data that a sales rep is going to submit to their manager each day or if they already have a CRM or sales system in place.  Are these types of metrics something that you can automatically track?

Randy: They are.  Let me give you a rundown in terms of what I would do with a client.  One of the things I would do is say, “Let’s just go through the entire process and determine some key metrics that should be important to you. Some key performance indicators.”  Some people refer to them as KPIs.

Marketing – The first area we look at is the marketing and brand awareness – that brand building.  People say, “Well, how do you measure that?” There’s some simple ways.  It can get very detailed, but there are simple ways.

  • How many website hits are you getting over a period of time; let’s say a week or a day, whatever the standard needs to be?
  • How many social media interactions are happening where you’re getting responses to things you’re putting out there?  You could use google analytics.  You could use a tool like Nimble and things like that.

Brand Awareness – If you move on down into that brand awareness and you move into the sales area, that’s where the actual deals happen, where they get sold.

  • You can measure those new lead generation type phone calls that are going out.
  • You could also measure the quotations that are being presented to clients.  How many quotations a day or week are being presented?
  • Then you can measure what’s the time to close?  How quickly are they closing those to make them into invoiceable services or products?

Production or Service Delivery – The next area we would look at would be the production of either the parts, if you’re selling parts, or production of services if you’re delivering services.

  • What is the order to ship time; the order to delivery time?  If you’re working in a manufacturing environment, that’s a real important process.
  • It is in service, too, but more so in manufacturing because you’ve got all kinds of side-effects that can affect your production order to ship time, material situations and man power and everything else.

Finance – One of the final areas that we’d look at is the finance, the AR.

  • What’s the days to close i.e. days to collection?
  • Because, it’s great to have a great sales month.
  • You sold a million dollars’ worth of goods and services.
  • But, if you’re not getting paid for them, that’s not necessarily a great sale.

We look at what are some of the problems in those areas by looking at the metrics and watch them as they progress.

When things happen, you need to get into the five whys. Some of the great leaders of Toyota manufacturing developed a process of five whys i.e. ask why something happened.  And, when you get an answer, ask why that answer transpired the way it did.  And, keep going down that to the five whys.

  • You find that the initial problem that you wanted to solve was way down stream that somebody did some other time and have the chance to address that.

Again, if you’re not watching your metrics, you may not even know what to ask.

Well Defined Metrics Help You Identify Problem Areas to Work On

Interviewer: So, it sounds like there’s a whole lot of things that can be measured within a company.  I want to give you an example on behalf of the listener that will kind of simplify some of this.

Think of a business that is doing a lot of sales right now, a lot of other activity.  They seem to get enough leads and enough new deals coming in.  But, for some reason there’s no money left in the bank at the end of the month.  There’s not a lot of profit going on.

  • What would you recommend that business look at within the data that they already have and maybe their accounting system or in their marketing system or in the money that they pay out to suppliers?
  • What can that business owner look at today in the existing data to try and identify what the problem might be that’s causing them to do a lot of business, but not make a lot of money.

Randy: I guess what I would suggest is they need to look at the accounting side, the finance side and, determine what are the costs of that product or service they’re delivering.

  • Do they really know their cost?
  • Are they controlling the factors that affect the profitability side?  Because, profit is a function of sales price, minus my cost of operating.
  • A lot of people say, “No, it’s the sales prices minus the cost of goods.”  No, it’s not.  It’s the entire cost of operating.

When you start looking at your metrics, and when something goes out of line, you’ll have that ability to focus where something’s going out of line from a cost stand-point, likely.  They would need to go look at the costs in every area, and we’re talking people, processes and products. If you’ve got processes that are out of control, costing you too much time or costing a lot of time, that’s money too.

If you’ve got product problems, quality issues going on, you’ve got to address those.  So, bottom line is you have to look at the cost of operating, not just the cost of goods.

Interviewer: I think that indicates a key principal I know we were talking about earlier, before the call, and that is basically having a number that you can look at that shows if there’s problems that are deeper down, so that cost of goods and that cost of actually fulfilling orders that includes the operation cost.  That’s really going to help you start to identify by if that cost is too high, obviously, you’re not going to be making money and you need to look at your supplier relationships and a range of other things.

  • I think that’s really helpful to help the listener understand that they basically need to have a number that tells them if they need to investigate it further.

Choose The Right Tools To Measure Various Aspects of Your Business

Interviewer: Once somebody already has an understanding of some of the numbers in their business and they kind of get the bug of being able to track metrics and understanding the value of it.

  • What are some of the more advanced systems that somebody can use or advanced mindsets, I guess, that somebody can use to really run their business by the numbers?
  • What are some of the things that somebody can have in place on a daily basis to be able to do that and what are some of the tools that will make their life easier to actually accomplish that within their business?

Randy: In those five areas that I talked about in the marketing analytics, you’ve got google analytics, which is a very low cost tool. In fact, the majority of it’s free.

Sales – You, in your sales area, would use products like Lead Master, Red Horse, and Nimble.

  • Nimble is a good product that bridges that marketing and sales cap because it’s got the social connectivity in that side of the business and the sales side for developing the relationship.  Again, you’ve got to have a good CRM system.

Production – Nimble, Lead Master, Red Horse, as you move into production, there are many specialized tools for the production areas, depending on what you’re trying to measure.  Again, it’s critical that you get a tool that fits your metric needs, the needs of measuring the metrics you’ve identified.

Finance – In your finance area, it’s accounting systems. A lot of people in the old days used to look down upon QuickBooks.

  • QuickBooks has come a long way. They are 80% of the market place for accounting in the one to 100 million dollar businesses. They have some great reporting tools and recording capabilities built in.

Take 30 minutes and look in the tools in the reports capability that’s in your accounting system.  That is a very critical factor in knowing how to measure and you’ll get ideas every time you get into it. Every time I go in with a client, there are areas we discover that they go, “Oh, I wish I’d known I was there.  That could have helped me tremendously.”  It’s real important to take that into account and use those tools.

  • The key is to make sure you buy the tools, the right tools, to do the job.  You don’t build a piece of furniture with a screwdriver.

Interviewer: I think that’s definitely a good analogy and I think to put that in context, regarding metrics, building a piece of furniture with just a screwdriver is kind of like trying to build out an entire system to measure everything within your business when you may be able to configure your CRM system to do that part.  Or you may be able to get that data automatically provided by your accounting system.

Summary and Next Actions

In summary, I think that one of the main things that Randy mentioned in the importance of tracking metrics was the analogy related with going to the doctor for a doctor’s appointment.  The doctor is going to gather some metrics to tell you if you’re sick right now.  He’s also going to gather other metrics to tell you if you have a chance of dying soon.  So, things like that,

  • Being able to have immediate metrics about how your business is doing today and also
  • Metrics that tell you a little bit about where the business is going and whether that’s good or bad is very important in your business.

Randy talked about the process to actually get metrics going in your business.  The first thing is to define what you care about. Don’t think about, “What should be measure and what the numbers going to be and what tool you’re going to use to measure it?”

  • Start with, “What do we actually care about in the business?  What questions do we need to answer?”
  • The next thing Randy talked about is figuring out how to actually measure that within your tools or within other systems you may be able to get access to.
  • Then, collecting the data and analyzing that data.

One thing I liked about what Randy said is keeping it simple and then building out your system from there.  I think that was very helpful.

Visit betterbusinesspodcast.com to get more information about today’s episode to meet with Randy for a free 30 minute consultation to help identify another view of your KPIs, your key performance indicator metrics, for your business and a measurement plan of how to actually get those in place.  Randy’s offered to provide that at betterbusinesspodcast.com.

Thank you so much for your time today, Randy.

Randy: You’re welcome.

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About the Author – Randy

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